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Mortgage Debt, Social Customs,and Financial Innovation

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Author Info
Michael Haliassos () (Goethe University, Frankfurt)
Pany Karamanou () (Central Bank of Cyprus)
Constantinos Ktoris () (Central Bank of Cyprus)
George Syrichas () (Central Bank of Cyprus)

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Abstract

Although housing can be a powerful channel of monetary policy transmission this channel can be weakened by social customs and financial liberalization as well as accompanying innovation that create alternatives to bank mortgages controlled by a central bank. This paper utilizes some unique questions in the 1999 and 2002 Cyprus Surveys of Consumer Finances, as well as data from the 1998 and 2001 US Surveys of Consumer Finances, in order to study the role of social customs (in the form of parental housing gifts) and financial liberalization for the incidence of homeownership rates, mortgage debt and borrowing constraints. Unlike existing studies of financially developed countries, the data from the Cyprus Surveys suggest that only a very small proportion of Cypriot households are credit constrained and that a number of important economic characteristics of the household are irrelevant for homeownership and for the use of mortgages. Our findings suggest that the presence of such customs may interfere with the monetary transmission mechanism by limiting the sensitivity of housing investment to changes in credit market conditions. Financial liberalization leading to innovation could work in the opposite direction if it leads to increased household participation in formal loans controlled by the central bank.

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Paper provided by Central Bank of Cyprus in its series Working Papers with number 2008-2.

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Length: 50 pages
Date of creation: Apr 2008
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Handle: RePEc:cyb:wpaper:2008-2

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Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
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Related research
Keywords: Homeownership; social customs; financial liberalization; monetary policy;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand

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    Other versions:
  4. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February. [Downloadable!] (restricted)
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    Other versions:
  8. Irene de Greef & Ralph de Haas, 2002. "Housing Prices, Bank Lending, and Monetary Policy," Macroeconomics 0209010, EconWPA. [Downloadable!]
  9. Frederic S. Mishkin, 2007. "Housing and the Monetary Transmission Mechanism," NBER Working Papers 13518, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. R. Glenn Hubbard & Kenneth L. Judd, 1986. "Liquidity Constraints, Fiscal Policy, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1986-1), pages 1-60. [Downloadable!]
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    Other versions:
  12. Georgia Antoniou & Christiana Argyridou & Michael Haliassos & Alex Karagrigoriou & George Kyriacou & Michalis C. Michael & Maria Papagheorgiou & George Syrichas, 2004. "Assets and Debts of Cyprus Households: Changes between the 1999 and 2002 Cyprus Surveys of Consumer Finances," Working Papers 0412, Central Bank of Cyprus. [Downloadable!]
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    Other versions:
  14. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March. [Downloadable!] (restricted)
    Other versions:
  16. Massimo Giuliodori, 2005. "The Role Of House Prices In The Monetary Transmission Mechanism Across European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(4), pages 519-543, 09. [Downloadable!] (restricted)
  17. Michael Haliassos & Christis Hassapis & Alex Karagrigoriou & George Kyriacou & George Syrichas & Michalis C. Michael, 2001. "Assets of Cyprus Households: Lessons from the first Cyprus Survey of Consumer Finances," University of Cyprus Working Papers in Economics 0205, University of Cyprus Department of Economics. [Downloadable!]
    Other versions:
  18. Cox, Donald, 1990. "Intergenerational Transfers and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 187-217, February. [Downloadable!] (restricted)
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